Dish scales back AutoHop in deal with Disney

Dish Network's Hopper won't be skipping ABC shows until three days following their premieres.

Dish Network's disruptive AutoHop feature, which automatically skips all the commercials on prime time network television shows, has fallen victim to TV industry deal-making.

Dish(DISH) announced on Monday night that it would turn off AutoHop for ABC shows until three days after a program first airs. The deal is part of a wide-ranging new contract agreement with The Walt Disney Co.(DIS), ABC's parent company.

AutoHop sparked a series of lawsuits, but the two companies said they'd drop "all pending litigation" involving the feature.

The contract has myriad other terms as well, including distribution for new cable channels owned by Disney and new Internet streaming capabilities for Dish. So both sides clearly benefit from the new contract -- but the disabling of Auto Hop is a significant concession by Dish.

It came after months of negotiations between the two companies. Disney's last contract with Dish had expired more than five months ago. Most of Dish's 12 million subscribers didn't know that, however, because the negotiations never blew up into a public dispute, and popular Disney programming like ABC, ESPN and The Disney Channel was never subject to a blackout.

The contract announcement and the crippling of AutoHop -- albeit only for ABC shows -- reflects the fact that content owners usually have the upper hand in battles with distributors. The agreement was first reported by The Wall Street Journal.

Dish's traditional digital video recorder functions, like the fast forward button, will continue to work for ABC shows. But AutoHop was a big step beyond that.

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Dish introduced the Hopper, a state-of-the-art digital video recorder that included the automatic ad-skipping feature, in early 2012. The distributor positioned it as a consumer-friendly tool to hide the ads that many people already fast-forward past, and promoted it as a reason to sign up for its service instead of competitors like DirecTV(DTV).

The feature itself was deceptively straight-forward; any cable or satellite provider or digital video recorder manufacturer could turn on a version of AutoHop at any time. But none have, partly because they have mutually-beneficial business partnerships with television network owners, and those networks would be severely threatened by automatic ad-skipping.

Not surprisingly, CBS(CBS), Fox(FOX) and Comcast(CMCSA) (the parent company of NBC) sued Dish for copyright infringement soon after AutoHop was introduced. Dish counter-sued and included ABC in its filing. While the court cases plodded along, television industry analysts speculated that the networks would seek to withhold their programming from Dish in future contract negotiations. Disney's contract, which had a September 30, 2013 expiration date, was the first one to come up for renewal.

Dish could not risk a blackout of ESPN, which is by many measurements the most valuable channel to American TV subscribers. So by agreeing to disable AutoHop, the distributor is putting its corporate interests -- and Disney's interests -- ahead of ad-skipping innovation.

The agreement demonstrates how the interests of channel owners and distributors are often in alignment, despite a number of looming threats to the business models of both.

The new contract will allow for other forms of technological innovation, though. It will help Dish start a new business, selling television subscriptions to new customers via the Internet instead of a satellite dish, if the company chooses to do so.

The new contract also expands streaming access and video-on-demand system access to Disney-owned channels for existing Dish subscribers.

But ABC's AutoHop exemption might irk some of those subscribers -- and will almost certainly lead the other major networks to seek similar arrangements with Dish.

Dish said AutoHop would specifically be disabled within the three-day period of time when networks charge advertisers for views of their ads, thereby preserving the current business model. That means AutoHop will still black out the ads in ABC shows four or more days after they premiere, at least for the time being.